The Blog of International Judicial Assistance | By Ted Folkman of Murphy & King

Unintended Consequences In The Lago Agrio Case

Posted on May 17, 2012

Keeping up their efforts to get Chevron’s shareholders to pressure management, the Lago Agrio plaintiffs have publicized a report by Simon Billenness, a consultant who “advises shareholders and fiduciaries on how to use the capital markets to protect their investments from potential environmental, social and legal risks.” The report was commissioned by Oil Change International, “a research, communication, and advocacy organization focused on exposing the true costs of fossil fuels and facilitating the coming transition towards clean energy.”

The most interesting point in the report is the reference to the declaration of Rex Mitchell, Chevron’s deputy comptroller, in which he asserted that enforcement action taken against Chevron’s assets was likely to cause irreparable injury to Chevron’s “business reputation and business relationships.” Chevron submitted this affidavit to Judge Kaplan when it was seeking a preliminary injunction enjoining efforts to obtain recognition and enforcement of the Ecuadoran judgment—its efforts succeeded at first but later failed when the Second Circuit vacated Judge Kaplan’s preliminary injunction and ordered dismissal of Chevron’s claim for a declaratory judgment regarding the non-enforceability of the judgment. This is a great example of unintended consequences in litigation. Chevron had to assert a risk of irreparable harm in order to justify its request for a preliminary injunction, but it handed the Lago Agrio plaintiffs a bit of a PR weapon: if Chevron meant what it said when it asserted that it faced irreparable harm, why has it not been more fulsome in its risk disclosures to investors?

If Chevron took a position in the litigation that turned out to be bad PR, I wonder whether the plaintiffs are making a PR move that may turn out to be bad for the litigation. In particular, is it really a good idea to trumpet the strategy of Patton Boggs’s Invictus memorandum? The basic point of the memo is that the plaintiffs can bring multiple enforcement proceedings across the United States, 1 and due to the magic of the Full Faith and Credit Clause, they only need to win once in the US to win everywhere. 2 I think there is a risk that this strategy, which seems aimed at disrupting Chevron’s business rather than collection, runs a risk of rubbing judges the wrong way and could lead, for example, to motions to transfer venue, motion practice before the Judicial Panel on Multidistrict Litigation, and similar moves. (As an aside, talk is cheap, and I think that the Lago Agrio Plaintiffs’ threats of imminent enforcement action have lost some credibility over time. I’m not really sure what’s holding them back. Let’s get cracking, Lago Agrio plaintiffs!)

There is another good example of unintended consequences in litigation that I’ve been meaning to write about for a while, and it’s really an illustration of the importance of playing chess, not checkers, in complex civil litigation. The Lago Agrio Plaintiffs had won a major victory when the Second Circuit held that Chevron could not preemptively seek a declaration that the Ecuadoran judgment was unenforceable; Chevron had to wait for a claim of recognition and enforcement. Assuming other courts would adopt the same rule, 3 the plaintiffs effectively had won the right to choose their forum. But then in the RICO case against Donziger and others, they asserted that the Ecuadoran judgment had issue-preclusive effect, which opened the door to Chevron to seek summary judgment on the question whether the Ecuadoran judgment is entitled to recognition, in Judge Kaplan’s court no less! Surely that’s the last place the plaintiffs want to litigate the question.

The memorandum also focuses on enforcement abroad, and it’s curious that the Billenness report should focus on enforcement in the US, as I had thought the plaintiffs had more or less disclaimed an intention to seek recognition and enforcement in the United States. ↩

Isn’t the flip side of this that due to the magic of issue preclusion, they only need to lose once to lose everywhere, if the loss is on a point of law that is fatal to recognition and enforcement in all states? For example, if the plaintiffs seek recognition and enforcement in State A but the court refuses to recognize the judgment on the grounds that Ecuador does not provide impartial tribunals, won’t the plaintiffs be collaterally estopped to relitigate that question in State B? I’m just sayin’. ↩

Assuming there were reason to think the plaintiffs did plan to seek recognition and enforcement in the United States, I question whether the Second Circuit’s rule is a good one—parties seek declaratory relief defensively all the time. I opined that the Second Circuit got the case right, but only because it was clear that there was no real risk that the plaintiffs would seek recognition and enforcement, at least in New York. ↩

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